Thread by Miles Deutscher
- Tweet
- Jun 20, 2022
- #Cryptocurrency
Thread
After Celsius and 3AC tanked the market, another concerning event has started to emerge.
With nearly a billion dollars of liquidations on the line, the price of one of crypto's largest L1s is at stake.
🧵: What's happening to $SOL and @solendprotocol, and why you should care.👇
With nearly a billion dollars of liquidations on the line, the price of one of crypto's largest L1s is at stake.
🧵: What's happening to $SOL and @solendprotocol, and why you should care.👇
2/ Right now, there are three major liquidations I've got my eye on. $778m worth of positions across $wBTC, $SOL and $ETH.
3/ But the $SOL situation is by far the most intriguing, and has sparked intense debate. Here's a break down of what's occurring: 👇
A $SOL whale deposited $160m on @solendprotocol to borrow $108m.
A $SOL whale deposited $160m on @solendprotocol to borrow $108m.
4/ As this position creeps closer to liquidation, it began to trigger fears that user funds could be put at risk.
Solana's recent instability lends itself to potential issues amidst a mass liquidation event. Additionally, user funds could be vulnerable due to high slippage.
Solana's recent instability lends itself to potential issues amidst a mass liquidation event. Additionally, user funds could be vulnerable due to high slippage.
5/ In response, @solendprotocol decided to reach out to the whale to negotiate a solution. They claimed that:
• The whale will always present a systemic risk to Solend and its users, and
• Letting a liquidation of this size to happen on-chain is extremely risky
• The whale will always present a systemic risk to Solend and its users, and
• Letting a liquidation of this size to happen on-chain is extremely risky
6/ But the whale never responded, so Solend issued a proposal which intends to "grant emergency power to temporarily take over the whale's account so the liquidation can be executed OTC."
realms.today/dao/7sf3tcWm58vhtkJMwuw2P3T6UBX7UE5VKxPMnXJUZ1Hn/proposal/HuaL6cDtuNtfnJgvwMnYiZDHVCoLAu...
realms.today/dao/7sf3tcWm58vhtkJMwuw2P3T6UBX7UE5VKxPMnXJUZ1Hn/proposal/HuaL6cDtuNtfnJgvwMnYiZDHVCoLAu...
7/ The proposal was met with vast public backlash, as many claimed that the intervention directly combats the essence of decentralisation (I would largely agree).
@el33th4xor (founder of $AVAX), @FatManTerra and @Coachkcrypto challenged the proposal.
@el33th4xor (founder of $AVAX), @FatManTerra and @Coachkcrypto challenged the proposal.
8/ @cobie labelled the $SOL situation "comedy", with @cz_binance also seemingly questioning the decision.
9/ If we learnt anything from the Celsius and 3AC situations, it's that on-chain transparency is a much-needed component of the crypto financial ecosystem.
This is the exact problem that DeFi is intended to solve.
This is the exact problem that DeFi is intended to solve.
11/ But despite the backlash to the proposal, 97.5% voted "Yes".
This is where things get interesting. 👀
This is where things get interesting. 👀
12/ It turns out that over 90% of the votes were issued by a single user.
The fate of $270m in user assets are effectively being decided by a single entity.
This is a fundamental flaw in the system, as voting power is decided by your DAO holdings.
The fate of $270m in user assets are effectively being decided by a single entity.
This is a fundamental flaw in the system, as voting power is decided by your DAO holdings.
13/ This resulted in further division amongst the community.
@solendprotocol quickly rushed to fix their mistake, by INVALIDATING vote #1, and instead issued a NEW proposal to:
• Invalidate the last proposal
• Increase governance voting time to 1 day
blog.solend.fi/slnd2-invalidate-slnd1-and-increase-voting-time-cdb3fe5b3293
@solendprotocol quickly rushed to fix their mistake, by INVALIDATING vote #1, and instead issued a NEW proposal to:
• Invalidate the last proposal
• Increase governance voting time to 1 day
blog.solend.fi/slnd2-invalidate-slnd1-and-increase-voting-time-cdb3fe5b3293
14/ The voter took to Discord to justify their position.
They claimed that they'd rather salvage "$120m of retail dollar instead of holding up DeFi ethos for some whale that is degenerately gambling.."
They claimed that they'd rather salvage "$120m of retail dollar instead of holding up DeFi ethos for some whale that is degenerately gambling.."
15/ The decision to invalidate the vote (although I believe it was the right one), raises another important issue:
What's the point of a DAO if proposal outcomes aren't adhered to?
What's the point of a DAO if proposal outcomes aren't adhered to?
16/ The initial proposal was a) fundamentally flawed, and b) far too easily manipulated by a singular party.
But in addition, cancelling the proposal invalidates the very authority a DAO claims to have.
A doubly whammy of decentralisation degradation.
But in addition, cancelling the proposal invalidates the very authority a DAO claims to have.
A doubly whammy of decentralisation degradation.
17/ Despite all this uncertainty, @SBF_FTX declared that "real solutions are coming."
Many accused him of "saving his bags", as the timing of this tweet coincided with $SOL dumping. Until now, SBF has been quiet on the Solana front for months.
Many accused him of "saving his bags", as the timing of this tweet coincided with $SOL dumping. Until now, SBF has been quiet on the Solana front for months.
18/ So what does the Solend situation mean for $SOL?
Once again, it highlights the network's centralisation concerns.
Controlling user funds is a big no no, and goes against the essence of decentralisation.
Once again, it highlights the network's centralisation concerns.
Controlling user funds is a big no no, and goes against the essence of decentralisation.
19/ In terms of the implications, this event negatively affects @solendprotocol more so than $SOL itself.
$SOL remains largely unharmed (although I'd still keep my eye on the $22.30 level).
But, it does highlight the increasingly relevant argument of decentralisation.
$SOL remains largely unharmed (although I'd still keep my eye on the $22.30 level).
But, it does highlight the increasingly relevant argument of decentralisation.
20/ This is the classic case of need vs want in crypto. What we WANT is decentralisation, but what we NEED (in this case) is user protection.
Striving for a healthy balance between the two is what we need to progress as an industry.
Striving for a healthy balance between the two is what we need to progress as an industry.
21/ If you enjoyed this thread, please give the 1st tweet a like and retweet. 💙
23/ UPDATE 2:
The whale has started to move funds.
This involves spreading liquidity across multiple lenders.
The liquidation wall still exists, but alleviates pressure from Solend.
The whale has started to move funds.
This involves spreading liquidity across multiple lenders.
The liquidation wall still exists, but alleviates pressure from Solend.
